By Rick Ferguson
[Editor’s note: This article is Part IV of a multi-part series. Read Part I here, Part II here, and Part III here.]
So far in this series, we’ve looked at the forces of creative destruction aligned against the legacy loyalty industry, and argued that the loyalty model of customer marketing is durable enough to stave off those forces. In the battle against disruption, the loyalty industry remains poised to thrive in the frictionless future.
That said, loyalty marketers still have much work to do to remain effective in this future. The key to success is for the broader loyalty industry – and by “loyalty industry,” I mean the collective global community of practitioners, consultants, providers, and agencies - to work together with the c-suite to remove friction from our customer relationships.
The reason why this cooperation is so important is because the removal of friction is, from the standpoint of consumer psychology, one of the most motivational activities we can undertake. That’s because friction and motivation are diametrically opposed forces. Software User Interface designers navigate this problem all the time: the more friction present in a UI, the less motivated a site visitor will be to navigate; conversely, the more motivated the user, the more friction that user will overcome to achieve a goal.
Our task then, is to simultaneously remove friction from the loyalty ecosystem while increasing customer motivation to participate in that system. Sounds easy, right? As we collectively attempt to balance this equation, then, here are the key strategic imperatives for loyalty marketers over the next few years:
Remove organizational friction: Many large-scale loyalty programs have become too big and unwieldy to achieve the goals for which they were designed. For these programs, most of the friction is internal to the organization. They’re like dinosaurs– the programs have grown so big and lumbering that all they can do is wait for the asteroid to arrive and wipe them out.
Can a hotel loyalty program with 80 million members, most of whom are inactive or who hold only small amounts of currency, really motivate incremental behavior? Can an airline program that has grown so large that platinum members struggle to get upgraded due to shrinking capacity really provide relationship stickiness? Can a global payment card provider maintaining a half dozen separate, siloed customer databases really understand who their most valuable cardholders are? Can a national retailer with a CMO, CIO, VP of Analytics and VP of Loyalty, each of whom is being measured on separate and unrelated metrics, really develop a 360-degree view of its customers? Are we maximizing the value of these massive memberships, or does all of the organizational energy merely go to keeping the engine running?
Many books have been written, and speeches given, highlighting the keys to removing organizational friction, so we need only summarize them here: unite the organization behind a customer-centric vision driven by the C-suite; agree to a common set of customer-centric KPIs; build cross-functional teams to implement your customer strategy; organize marketing around customer segments, not just products or channels; and break down the data silos. This work is not easy, nor is it for the faint of heart; the first step is the most important. Even the most successful customer-centric organizations must continually refine and refocus this vision.
Remove financial friction: We all know about the tens of trillions of unredeemed loyalty points sitting in member accounts around the globe. And we all know that a certain healthy but small percentage of breakage is good for program balance sheets.
To unlock the power of these programs, however, think of liability not as a balance sheet negative, but rather as a way to quantify investment in our best customers. Every one of those unredeemed points represents a potential opportunity to increase customer value. Seek ways to encourage redemptions at all levels of membership – and you we can’t move the needle, seek ways to disinvest in low-value, low-potential customer segments.
Rather than find your program stymied by the millions of dollars of unredeemed currency on your books, find ways to make that currency liquid. Technology, perhaps based on the blockchain or some other decentralized system, will play a role in unlocking financial friction. The convergence of loyalty with mobile payments will also encourage increased liquidity. So will partnerships. The hotel industry, as exemplified by recent program refinements by Hilton and La Quinta, among others, exemplifies this trend toward removing financial friction. More industries and programs will follow.
Remove experiential friction: Henry David Thoreau once said, “Simplify, simplify.” We know from copious research that today’s consumers want loyalty programs that are fast, free, easy, and mobile.
There’s a temptation to cater to these desires by making loyalty programs all about engagement and gamification while giving up on currency and points, that tendency may be throwing out the proverbial baby with the bathwater. As always, your business model, brand, and customer strategy will determine the program structure. In some cases, a points-based program will remain your best option to encourage profitable customer behavior change; in other cases, programs based on soft benefits, experiences, or engagement elements will suffice.
To remove experiential friction from your program, continually seek ways to simplify program rules, reduce or eliminate restrictions, or upgrade CX or redemptions interfaces that increase friction and decrease motivation. There are plenty of examples of program operators transforming their programs in this fashion; look for what works and emulate it, or brainstorm your own program enhancements.
Remember, however, not to remove too much friction; if your customers are earning rewards passively, without the impetus to change their behavior, then you may just be subsidizing existing behavior. Encourage your best customers to raise their hands, identify themselves, and then take action to engage in a deeper relationship with you. Once they do, provide them with a rewarding, frictionless experience. That’s the key winning the battle for customer loyalty in the frictionless future.
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.